Upload
lawrence-carpenter
View
217
Download
0
Tags:
Embed Size (px)
Citation preview
Joseph L. Petrelli, ACAS, MAAA, FCADemotech, Inc.
National Settlement Services and Compliance SummitPanelists: Joseph Piernock, Carl Grimes & Joseph Petrelli
June 2011
2
Publisher of Performance of Title Insurance Companies: Includes all publicly traded Title underwriters and most of the regional and local Title underwriters
Demotech has been reviewing and rating Title underwriters since 1992
Demotech was the first company to review and rate the entire industry
Leading provider of Title industry financial data
Reputation and experience in the industry is unmatched
Proprietary benchmark data and analysis
An independent appreciation of the value proposition of Title insurance
3
Planned Exit or Retirement
• Getting ready for exit• Understanding the major
milestones• Positioning and timing for exit• Transition of leadership
Valuing Your Firm
• What creates value• Traditional valuation concepts and
major components• Review & analysis of financial
history – corporate as well as industry
• Valuation methods that measure your firm’s unique strengths
• Benchmark - with industry and historical valuations
Representing Buyers or Sellers
• Understanding of the Title industry for highest and best value
• Industry activity and contacts• Prospecting for buyers or sellers• Marketing and positioning• Closing the deal
Exit StrategyValuation Merger or Acquisition
Enhancing the value of your agency
5
Get me out now for the most money I am electing to keep working and do not care (yet) about exiting I am sticking around to exit at a later date for a higher value I am ready and prepared to exit I am not ready and need information to begin to plan my exit
6
Retirement Exit
◦ Planned◦ Urgent and unplanned
Estate planning Managerial transition Employee stock ownership Personal or professional matter such as a bankruptcy, divorce,
litigation, etc.
7
Owner / operator buyer
Strategic buyer
Financial buyer
Other third party
8
All Buyers Profitability Growth rates Industry niche Competitive advantage Management Comparables Financial markets Customer concentration Regulatory landscape Technology Operational processes
Strategic Buyers Operational synergies Complementary marketing, sales
and distribution Expansion of customer base Horizontal or vertical integration
Corporate/Institutional Buyers Fund culture Fund charter Exit mechanism Financing Existing portfolio of clients
Recent comparables Valuations and models in use
◦ Private company comparables are recent sales of “like” companies; the preferred yardstick for all valuations if you are “like” everyone else
◦ Public company comparables are typically not applicable to privately-held firms
◦ The discounted cash flow analysis extrapolates value by projecting forward gross profits and net cash flows and discounts them back to current periods
◦ Leveraged buy out model, used primarily by financial buyers, who are constructing financial models to calculate how much debt a business can carry yet produce a financial breakeven
Gross revenue valuation – a multiple of gross revenues EBITDA valuation – a multiple of the adjusted bottom line Gross profit valuation – values the company on gross profits
Documentation of Add-Backs
10
Title insurance is a monoline product Can not write or produce anything else Always a need for low loss ratio business
Scenario 1 $ 3,000,000 $ 30,000 1.00%
Scenario 2 $ 3,000,000 $ 482,400 16.08%
Scenario 3 $ 3,000,000 $ 600,000 20.00%
The Potential Affects of Loss Ratio’s On Valuation
Start the Process Early◦ 3-5 years before the sale is not uncommon
◦ Put your Investment Memorandum on the shelf and update it annually Get Your House in Order
◦ Financials, operations, contracts, leases, patents, trademarks, etc.
◦ Make sure that everything is assignable to the buyer
◦ Be prepared for extensive due diligence Buyer’s Point of View
◦ Buyer cares about stable revenue streams and potential for growth
◦ Understand your potential buyer’s point of view, interest, and motivations
14
Make Yourself Less Central to the Business’s Success◦ If all of the key decisions revolve around you, the value of the company
maybe limited and, therefore, the business is less attractive to a buyer◦ Identify or hire key staff to be leveraged as internal resources
Remain Focused on Running and Growing Your Business ◦ Outsource the sales process so that you do not endanger relationships with
key clients, employees, or partners whose departure could threaten a transaction or the internal operations of your business
Get Professional Assistance ◦ Valuation, due diligence, and the marketing of your business◦ Without competent advisors, you decrease your chances of selling your
business at its maximum price
15